MEXICO CITY (Reuters) – Mexico’s peso, which swung wildly in early June after a Fitch downgrade and brief U.S. threat to impose tariffs, has steadied as the country’s high interest rates attracted foreign buyers of bonds using borrowed money, analysts and economists said.
Under the “carry trade” strategy, investors borrow money in the currency of a country with low interest rates, such as the United States and some European countries, to buy bonds of a high-yield country like Mexico.
Mexico - Central - Bank - Interest - Rate
Mexico’s Central Bank has kept its benchmark interest rate steady at 8.25% since hiking it in December to the highest level among all emerging countries except Turkey and Argentina.
The U.S. Federal Reserve’s rate is 2.25%-2.50%.
Extent - Spread - Rates - Carry - Trade
“To the extent that the spread of rates was increasing, the carry trade began to become more important,” said Gabriela Siller, an economist at Mexican bank Banco Base.
Since December 2015 the spread has doubled as the central bank raised rates to contain inflationary pressures, and foreign holdings of Mexican debt have grown by 87.2 billion pesos ($4.58 billion).
Mexico - President - Andres - Manuel - Lopez
Mexico’s President Andres Manuel Lopez Obrador regularly boasts of a strong economy, citing the peso as proof, despite a first-quarter contraction and signs of faltering investor confidence.
U.S. President Donald Trump vowed on May 30 to impose a tariff on all Mexican...
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